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Shadow-Pricing Interpretation of the Pigovian Rule for the Optimal Provision of Public Goods: A Note

  • Atsushi Tsuneki


The Pigovian rule for the optimal public goods provision with distortionary taxation is given a new interpretation. It relates the Pigovian rule to project evaluation rules in terms of shadow prices. Our formula for the Pigovian rule is compared with that given by existing literature for cases in which commodity taxes are set optimally to articulate the implications of their results. This approach also renders a clear insight on the nature of resource allocation and income redistribution effect involved in the public goods provision in a heterogeneous-consumers economy. Copyright Kluwer Academic Publishers 2002

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Article provided by Springer & International Institute of Public Finance in its journal International Tax and Public Finance.

Volume (Year): 9 (2002)
Issue (Month): 1 (January)
Pages: 93-104

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Handle: RePEc:kap:itaxpf:v:9:y:2002:i:1:p:93-104
DOI: 10.1023/A:1014473909575
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  1. Wildasin, David E., 1979. "Public good provision with optimal and non-optimal commodity taxation : The single-consumer case," Economics Letters, Elsevier, vol. 4(1), pages 59-64.
  2. Hammond, Peter J., 1986. "Project evaluation by potential tax reform," Journal of Public Economics, Elsevier, vol. 30(1), pages 1-36, June.
  3. Dreze, Jean & Stern, Nicholas, 1987. "The theory of cost-benefit analysis," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 14, pages 909-989 Elsevier.
  4. Wildasin, David E, 1984. "On Public Good Provision with Distortionary Taxation," Economic Inquiry, Western Economic Association International, vol. 22(2), pages 227-43, April.
  5. Diamond, P. A., 1975. "A many-person Ramsey tax rule," Journal of Public Economics, Elsevier, vol. 4(4), pages 335-342, November.
  6. Charles L. Ballard & Don Fullerton, 1990. "Distortionary Taxes and the Provision of Public Goods," NBER Working Papers 3506, National Bureau of Economic Research, Inc.
  7. Konishi, Hideo, 1995. "A Pareto-improving commodity tax reform under a smooth nonlinear income tax," Journal of Public Economics, Elsevier, vol. 56(3), pages 413-446, March.
  8. Lau, Lawrence J & Sheshinski, Eytan & Stiglitz, Joseph E, 1978. "Efficiency in the Optimum Supply of Public Goods," Econometrica, Econometric Society, vol. 46(2), pages 269-84, March.
  9. Weymark, John A., 1979. "A reconciliation of recent results in optimal taxation theory," Journal of Public Economics, Elsevier, vol. 12(2), pages 171-189, October.
  10. Hylland, Aanund & Zeckhauser, Richard, 1979. " Distributional Objectives Should Affect Taxes but not Program Choice or Design," Scandinavian Journal of Economics, Wiley Blackwell, vol. 81(2), pages 264-84.
  11. Batina, Raymond G., 1990. "On the interpretation of the modified samuelson rule for public goods in static models with heterogeneity," Journal of Public Economics, Elsevier, vol. 42(1), pages 125-133, June.
  12. King, Mervyn A., 1986. "A pigovian rule for the optimum provision of public goods," Journal of Public Economics, Elsevier, vol. 30(3), pages 273-291, August.
  13. Diewert, W. E., 1983. "Cost-benefit analysis and project evaluation : A comparison of alternative approaches," Journal of Public Economics, Elsevier, vol. 22(3), pages 265-302, December.
  14. Sandmo, Agnar, 1998. "Redistribution and the marginal cost of public funds," Journal of Public Economics, Elsevier, vol. 70(3), pages 365-382, December.
  15. Tsuneki, A., 1992. "Project Evaluation Rules for the Provision of Public Goods Reconsidered," ISER Discussion Paper 0262, Institute of Social and Economic Research, Osaka University.
  16. Vidar Christiansen, 1981. "Evaluation of Public Projects under Optimal Taxation," Review of Economic Studies, Oxford University Press, vol. 48(3), pages 447-457.
  17. Boadway, Robin & Keen, Michael, 1993. "Public Goods, Self-Selection and Optimal Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 463-78, August.
  18. Besley, Timothy & Jewitt, Ian, 1991. "Decentralizing Public Good Supply," Econometrica, Econometric Society, vol. 59(6), pages 1769-78, November.
  19. A. B. Atkinson & N. H. Stern, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 119-128.
  20. Atsushi Tsuneki, 1989. "The Measurement of the Benefits of Public Inputs with Distortionary Taxation," Canadian Journal of Economics, Canadian Economics Association, vol. 22(4), pages 885-91, November.
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